Correlation Between Dow Jones and Federal Home
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Federal Home at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Dow Jones and Federal Home into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Federal Home Loan, you can compare the effects of market volatilities on Dow Jones and Federal Home and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Dow Jones with a short position of Federal Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Federal Home.
Diversification Opportunities for Dow Jones and Federal Home
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and Federal is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Federal Home Loan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home Loan and Dow Jones is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Dow Jones Industrial are associated (or correlated) with Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home Loan has no effect on the direction of Dow Jones i.e., Dow Jones and Federal Home go up and down completely randomly.
Pair Corralation between Dow Jones and Federal Home
Assuming the 90 days trading horizon Dow Jones is expected to generate 8.19 times less return on investment than Federal Home. But when comparing it to its historical volatility, Dow Jones Industrial is 7.44 times less risky than Federal Home. It trades about 0.12 of its potential returns per unit of risk. Federal Home Loan is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 141.00 in Federal Home Loan on August 31, 2024 and sell it today you would earn a total of 918.00 from holding Federal Home Loan or generate 651.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.73% |
| Values | Daily Returns |
Dow Jones Industrial vs. Federal Home Loan
Performance |
| Timeline |
Dow Jones and Federal Home Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Federal Home Loan
Pair trading matchups for Federal Home
Pair Trading with Dow Jones and Federal Home
The main advantage of trading using opposite Dow Jones and Federal Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Federal Home can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Federal Home will offset losses from the drop in Federal Home's long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
| Federal Home vs. Federal National Mortgage | Federal Home vs. Federal National Mortgage | Federal Home vs. Federal National Mortgage | Federal Home vs. Federal National Mortgage |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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